New Zealand's exports grew to a record high last year, as China extended its lead as New Zealand's largest trading partner.

Data released on Tuesday showed total annual exports reached $53.7 billion in 2017, up 11% on the previous year and exceeding the earlier record from 2014.

Imports also increased, up 9.4% to $56.5bn, creating a trade deficit of $2.8bn, the lowest in three years. The gap narrowed in December, making it the strongest month for exports of all time.

Nearly half of the annual growth came from China, which has been New Zealand's largest export destination since 2013 when it overtook Australia, with the gap between the two economies continually increasing.

Exports to China totalled just under $12bn in 2017, an increase of 27% on the year before. Exports to Hong Kong also surged, up 55% to $1.2bn, making it New Zealand's seventh largest trading partner.

Meanwhile, Australian exports grew more modestly, up 6.5% to $8.8bn.

China was also New Zealand's largest source of imported goods, totalling $10.9bn, a 5.7% increase on 2016.

Economists predicted a larger trade deficit, with December's trade balance showing exports exceeded imports by $640 million, significantly more than the monthly deficit the market expected.

The figures caused the New Zealand dollar to jump marginally.

"The main surprise was a surge in exports to a new record high, though this is likely to be short-lived," Senior Economist at Westpac, Michael Gordon, said.
He added, "Exports rose by 13% in seasonally adjusted terms in December, setting a new monthly record by quite some margin".

Spurred on by an increase in dairy exports, up 12%, the surge is expected to decline as recent dry weather will likely impact volumes.

ASB said it expected the trade deficit to decline further this year.

"That said, we expect the volatility in trade data to continue as weather continues to throw around agricultural production and exports”.